Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
TO: [Addressee]
FROM:
Eleanor Struth
Insurance and ITC Allocation Unit
Excise & GST/HST Rulings Directorate
Place de Ville, Tower A, 15th Floor
320 Queen Street, Ottawa
K1A 0L5
Case Number: 165129
[Dear Client]
Subject: GST/HST INTERPRETATION
ITC eligibility for company that owns trust units
We are writing in response to your request regarding the input tax credit (ITC) eligibility for […] (the Parent). We apologize for the delay in our response.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
[STATEMENT OF FACTS]
Based on the […] information provided […], we understand the following:
* The Parent is the parent corporation of a complex structure of entities, […]. The Parent owns units of […][Trusts] […].
* […][Information about specific transactions]
* […][Specific information about the organizational structure]
* We understand that […][the supply of real property to other entities] is a commercial activity for GST/HST purposes.
* The […][argument has been made] that [the Parent] provides management services to related entities, and has provided sample invoices which indicate that it provides management services to […][X], however, we have not been provided with any agreements for management services.
[INTERPRETATION REQUESTED]
[…][Eligibility to claim certain ITCs]
[INTERPRETATION GIVEN]
General ITC Entitlement:
As you are aware, subsection 169(1) generally allows a person who is a GST/HST registrant to claim an ITC for the acquisition of property or a service that is for consumption, use or supply in the course of the person’s commercial activities, where certain conditions are met. Section 141.01 clarifies the ITC eligibility set out in subsection 169(1).
Pursuant to subsection 141.01(2), a person is deemed to have acquired property or a service for consumption or use in commercial activities only to the extent that the property or service is acquired for the purpose of making taxable supplies for consideration in the course of an endeavour of the person. To the extent that the property or service is acquired for the purpose of making supplies in the course of an endeavour that are not taxable supplies made for consideration or for a purpose other than making supplies, the person is deemed to have acquired the property or service for consumption or use otherwise than in commercial activities.
Therefore, generally to be eligible to claim ITCs on the acquisition of a particular property or service, the Parent must demonstrate that the property or service is acquired for its commercial activities, that is, to make taxable supplies for consideration.
Financial services:
The definition of commercial activity generally includes a business carried on by a person, except to the extent to which the business involves the making of exempt supplies. Under section 1 of Part VII of Schedule V to the ETA, unless a supply of financial service is zero-rated under Part IX of Schedule VI, a supply of a financial service is exempt. Paragraph (d) of the definition of financial service includes the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of a financial instrument, and paragraph (f) includes the payment or receipt of money as dividends (other than patronage dividends), interest, principal, benefits or any similar payment or receipt of money in respect of a financial instrument. An interest in a trust or partnership is a financial instrument.
The information provided indicates that some of the ITCs in question may relate to exempt supplies of financial services by the Parent. For example, the purchase of trust units by the Parent are exempt supplies. Therefore, to the extent that any property or services, such as legal and consulting services, were acquired by the Parent to make these exempt supplies, the Parent would be considered to have acquired the property or service for consumption or use otherwise than in commercial activities.
Management Services:
[…][The argument has been made] that some of the ITCs in question relate to inputs acquired by the Parent to make taxable supplies of management services. However, no agreement has been provided to substantiate the Parent’s provision of management services. The nature of any management services provided by the Parent would have to be clarified to determine how any particular property or service could be considered to be an input into those services, before determining the extent that the property or service was acquired for the Parent’s commercial activities.
Sales of Real Property:
[…], it is not clear from the information provided whether the Parent did make […][taxable supplies by way of sale of real property] or whether the real properties were instead sold by other entities in the corporate structure.
Activities of Another Person:
As noted, under subsection 169(1), one of the basic requirements for ITC eligibility is that the property or service be acquired for consumption, use or supply in the commercial activities of the person acquiring the property or service. Therefore, generally, a person is not eligible to claim ITCs on expenses related to another person’s activities, and not its own activities.
Based on the information provided, it appears that several of the ITCs […] may be in relation to the business or activities of another person, and not the Parent. To the extent that property or services were acquired […][in relation to the business or activities of another person, and not the Parent], they would be considered to be acquired for consumption or use otherwise than in the Parent’s commercial activities. For example, if […][flights were acquired] to travel […][for the benefit of] other entities, then it appears that the flights may have been acquired in relation to activities of other entities and not the Parent’s activities. Further, if the consulting services […] were acquired to obtain advice regarding the growth of the [Trust], then it appears they may have been acquired in relation to activities of another person, and not the Parent’s activities.
[…]
Purpose other than making supplies:
Furthermore, to the extent that the Parent acquires a property or service for a purpose other than making supplies, under subsection 141.01(2), the Parent is deemed to have acquired the property or service for consumption or use otherwise than in commercial activities. For example, if consulting services were acquired for a purpose other than making supplies, the Parent would be considered to have acquired the services for consumption or use otherwise than in commercial activities.
Court Cases:
[…][It has been argued that] two court cases […][support the Parent’s] eligibility to claim ITCs under subsection 169(1), including BJ Services Company Canada et al v. the Queen [2002] GSTC 124 and General Motors of Canada Limited v. the Queen [2008] TCC 117 and [2009] FCA 114. However, it is our position that the fact scenario in the present case is very different from the facts encountered in those court cases.
Subsection 186(1):
Subsection 186(1) sets out rules for registrant corporations that are resident in Canada and invest in related corporations that are engaged in commercial activities. These rules enable such corporations to claim ITCs to the extent their expenses relate to the shares of the capital stock or indebtedness of those related corporations, where all of the conditions are met.
Where all the conditions under subsection 186(1) are met and only for purposes of determining an ITC of the parent corporation, to the extent the property or services are acquired, imported or brought into a participating province by the parent corporation for consumption or use in relation to the shares of the capital stock or indebtedness of a related corporation, the property or services are deemed to have been acquired to that extent for use in the course of commercial activities of the parent corporation. This deeming provision permits the parent corporation to claim ITCs in respect of these inputs if the other requirements for ITCs are satisfied.
[…][It has been argued that] expenses which relate to entities owned, directly or indirectly, by the Parent should be allowed pursuant to subsection 186(1). However, there are several conditions under subsection 186(1) which must be met, and where any of them are not met, subsection 186(1) will not be applicable to that expense. For example, subsection 186(1) is very specific that it applies where a corporation holds shares or indebtedness of a related corporation,
“a registrant…acquires …particular property or a service that can reasonable be regarded as having been so acquired…in relation to shares of the capital stock, or indebtedness, of another corporation that is at that time related to the parent…”
The [Trusts] are not corporations, but trusts. Therefore, subsection 186(1) will not be applicable to any property or services acquired by the Parent in relation to its holding of trust units in any of the [Trusts], or in relation to its interest in any other entity (such as a partnership) which is not a related corporation. For example, to the extent that the Parent acquired legal or consulting services in relation to its holding of units in one of the [Trusts], it will not be eligible to claim ITCs under subsection 186(1).
[…][It has been argued that] the decisions in Stantec Inc. v. the Queen [2008] TCC 137, Perfection Dairy Group Limited v. the Queen [2008] TCC 124, and Miedzi Copper Corporation v the Queen [2015] TCC 26 […][support the Parent’s] position regarding subsection 186(1). However, the facts in these court cases are very different from the current situation.
[In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the interpretation given in this letter provided that: none of the issues discussed in the interpretation are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.]
If you have further questions or require clarification on the above information, please contact me at 780-495-7507.
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